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Prices at pump fail to dampen demand for big products

From Ward's | Oct 12, 2005

To what degree the buying public’s vehicle purchases are being colored by the escalating cost of fuel is the industry hot button of the day.

The national retail price for regular unleaded gasoline jumped 12.5 cents in the last week of September to $2.93 per gallon, the third-highest price on record, the U.S. Energy Information Admin. says. That’s up 99 cents from a year ago.

While recent Hurricanes Katrina and Rita can be blamed for shutting some oil refineries along the Gulf Coast, thus impeding the production of gasoline, many analysts predict petroleum prices will remain high going into 2006.

Although the national media is singing a requiem for large SUVs while reporting a frenzied demand for small cars and hybrid-electric vehicles, such as the Toyota Prius, the question of whether consumers are changing their buying habits remains a subject for debate with Detroit’s Big Three.

Chrysler Group, for instance, reports the Dodge Ram fullsize pickup recently saw its best sales quarter, by about 4,000 units, since 1999. And Ram September sales were 5% higher than year-ago.

“We frankly expected to get dinged a little bit, and we didn’t,” says Gary Dilts, senior vice president-sales, noting prices at the pump have not dampened demand for the company’s Hemi V-8 engine, which continues to enjoy a 43% take rate.

This he credits to Chrysler’s Multi-Displacement System, which shuts down half the cylinders when not needed. But Dilts does note the auto maker saw a sales jump of lower-end, high-mileage cars in September, including the Neon (69%) and PT Cruiser (24%).

A similar juxtaposition was seen at General Motors, where Hummer and Saturn were the only brands to increase September sales vs. year-ago.

Paul Ballew, GM general director-global sales and analysis, agrees, noting that despite the high gas prices and recent hurricanes, industry sales and economic activity exceeded the auto maker’s estimates. He warns October could “be a bit rocky,” due to pull-ahead sales resulting from incentives.

But Steve Lyons, Ford group vice president-North America marketing, sales and service, hits at the heart of the matter. Car and cross/utility vehicle sales, he says, “likely will continue to attract buyers in an environment where gasoline prices are rising.”

If so, Chrysler is ready. “We have a good mix of 4- and 6-cyl. engines and we have MDS on the Hemi,” Dilts says. “We can move the mix pretty much in line with the marketplace. So far, we have not seen a giant move in that direction.”